Bottom Fishing For Dividend Stocks

Throughout the second half of 2011, stocks around the world were beaten down. However, since the start of 2012, equity markets have remarkably rebounded, volatility has subsided and the world economy has yet to fall off a cliff. Taking the market's lead, many investors are now searching for stocks that were hit hard by the 2011 turmoil. It's bottom-fishing time!

I ran a screen to identify dividend-paying, large cap stocks trading within 5% of their 52-week lows. As with all screens, this is a first step in the research process, narrowing the universe of stocks to a manageable roster worthy of deeper research. Here's what I came up with:

Comment: Decent yields across the board, but I'd be very wary of any company with a payout ratio over 90%, specifically FTE, PT and TI.

Leverage:

Ticker

LT Debt/Equity

Total Debt/Equity

CAJ

0

0.02

CHK

0.72

0.72

DEG

0.52

0.65

FTE

1.12

1.12

K

2.32

2.64

PC

0.44

0.62

PT

3.01

4.15

RRD

1.9

2.18

TI

1.3

1.47

TLK

0.3

0.39

Click to enlarge

A debt to equity ratio below 1 is fairly conservative. Companies with consistent profitability are able to apply more leverage, thus amplifying returns. K, PT and RRD are the most leveraged companies in the list.

Profitability:

Ticker

Return on Equity

Operating Margin

CAJ

9.32%

10.01%

CHK

10.38%

21.47%

DEG

11.31%

4.69%

FTE

10.76%

15.29%

K

52.79%

14.63%

PC

-5.25%

2.20%

PT

8.82%

12.74%

RRD

11.54%

3.76%

TI

0.42%

11.19%

TLK

24.78%

31.08%

Click to enlarge

Wide profit margins allow more room for error when it comes to dividend payouts and leverage. Based on its low margins, fairly high payout ratio and heavy debt, RRD appears especially susceptible to downturns in its business.

Based on the screen and data above, both CHK and DEG appear to be worthy of additional research. RRD is also attractive, but one should look deeper to identify the risk to its margins.

Disclosure: I am long DEG.

Additional disclosure: This is not advice. While Plan B Economics makes every effort to provide high quality information, the information is not guaranteed to be accurate and should not be relied on. Investing involves risk and you could lose all your money. Consult a professional advisor before making any investing decisions.